For most people, buying a home is the most significant purchase they will make in their lifetime. Before you get started on your journey, it is important to understand which mortgage options are out there.
A conventional loan is one of the more popular options, but they come with a few significant requirements. Below we’ve shared a few details about conventional loans that’ll help you understand if they’re right for you.
The Basics of a Conventional Mortgage
The length of most conventional loans is 15, 20, or 30 years. To qualify, you will need a good credit score. The minimum score to be approved can vary from lender to lender, but a score of 620 is usually what you will need to be approved, and a score of 740 will help you secure the best rate possible.
Unlike other loans, a conventional mortgage will require a significant down payment. Most other loans require an initial payment of about 5%, but with a conventional loan you can expect put down up to 20%. The amount varies and depends on your credit history. You will also be responsible for origination fees, appraisal fees, and mortgage insurance.
There are two types of conventional mortgage loans: conforming and non-conforming.
Conforming loans follow guidelines set by Fannie Mae and Freddie Mac. The rules for these loans are based on the size of the loan. In 2016, home loans for single-family homes were limited to $417,000, while higher-cost areas held limits up to $625,500.
Non-conforming loans are suitable for borrowers who don’t qualify for a conforming loan because the amount is more than what can be backed by Fannie Mae or Freddie Mac. Most lenders charge higher rates for non-conforming loans since they typically carry other fees and insurance requirements.
Is a Conventional Loan Suitable for You?
Conventional loans are a great choice for borrowers with a strong credit history who can afford a down payment of at least ten percent or more. The higher your credit score, the lower your interest rate.
Lenders are also looking for a debt-to-income-ratio that sits around 36%. People with a little more debt than average and a modest credit score may not qualify for a conventional loan. Acquiring a conventional loan is a little more difficult for those with a DTI over 43% and a credit score below 650.
We’ve created these guides to be a valuable resource to walk you step-by-step through your next adventure.
Do You Qualify for a Conventional Loan?
Contact Assurance Financial today to see if a conventional loan is suitable for you. Our team of home loan experts is prepared to address any questions or concerns you have about the loan process.
Click here for more information about conventional loans at Assurance Financial.